Recent Studies on Retirement Policy
Paper Session
Saturday, Jan. 8, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Signe-Mary McKernan, Urban Institute
Abandoned Retirement Savings
Abstract
Retirement savings abandonment is a rising concern connected to defined contribution systems and default enrollment. We use tax data on Individual Retirement Accounts (IRAs) to establish that in 2017, 2.7% of 72.5 year-old account holders in total abandoned $790 million; the median abandoned account held $5,400. A regression discontinuity design enabled by account thresholds for automatic rollover IRAs reveals that abandonment is 10 times higher in these default plans. State unclaimed property records show a limited role to reduce abandonment. We nest our findings in a model of retirement savings featuring forgetting to derive implications for passive and active savers.The Impact of Withdrawal Penalties on Retirement Savings
Abstract
Tax-benefited retirement accounts have features designed to encourage retirement savings, including a penalty for withdrawing before age 59.5. Account-holders also face a penalty for failing to take required minimum withdrawals after age 72. Using a bunching analysis, we estimate that these penalties cause more than 17% of traditional IRA holders to change their withdrawal timing each year, shifting close to $60 billion of distributions annually. We estimate a dynamic life-cycle model and run counterfactual policy analysis to analyze the effect of changing these penalties. For both penalties, we find alternative combinations of age threshold and penalty rate that lead to increased average welfare and lifetime tax remittances: increasing the age threshold while simultaneously lowering the penalty rate for penalty-free withdrawals, and increasing the age threshold for required withdrawals while leaving the penalty rate unchanged.Investigating the Introduction of Fintech Advancement Aimed to Reduce Limited Attention regarding Inactive Savings Accounts – Data, Survey, and Field Experiment
Abstract
Lost and forgotten retirement savings accounts are increasingly becoming a problem. This paper uses proprietary data, survey data, and a field experiment to study the effect of two campaigns to raise awareness and direct attention to this issue among account holders. The first campaign is based on a fintech innovation – a centralized database, accessible via a website, created by the Israeli financial regulator to help individuals find and manage inactive retirement savings accounts. The website substantially lowered observation and information search costs for finding inactive accounts and was widely publicized. The second campaign utilized the information from the website to encourage individuals (via a tax exemption and an awareness campaign) to close small inactive accounts and avoid new minimum management fees that would gradually exhaust the savings over time. We show evidence that after the campaigns, inactive retirement accounts still only received limited attention. This is more pronounced for individuals with low socioeconomic status and low financial literacy. The results of a controlled field experiment indicate that interventions that provide similar information using a more personal interaction (face-to-face or video) can increase attention.Discussant(s)
Courtney Coile
,
Wellesley College
Annamaria Lusardi
,
George Washington University
Leora Friedberg
,
University of Virginia
Mingli Zhong
,
Urban Institute
JEL Classifications
- G5 - Household Finance
- H2 - Taxation, Subsidies, and Revenue